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12. DEBT

12 Months Ended

Oct. 31, 2012

12.

DEBT

Senior Debt

The Company has a Credit Agreement (the “Agreement”) with Bank of America to provide a senior financing facility consisting of term debt and a revolving line of credit. Under the Agreement, Bank of America is the Company’s sole senior lender.

The Agreement has a total loan capacity of $20,500,000 and obligates the Company to a $15,500,000 term note and access to a $5,000,000 revolving line of credit. The revolving line of credit can be used for the purchase of fixed assets, to fund acquisitions, to collateralize letters of credit, and for operating capital. There was no balance on the line of credit but it collateralized a letter of credit of $1,504,000 as of October 31, 2012. Consequently, as of October 31, 2012, there was $3,496,000 available to borrow from the revolving line of credit. The revolving line of credit matures on March 30, 2013.

The Agreement amortizes the term note over a five year period with 59 equal monthly installments of $184,500, commencing May 5, 2010, and a final payment of $4,114,500 due at the end of five years. There was $9,465,000 outstanding on the term note as of October 31, 2012. Also, the Company is subject to various restrictive covenants under the Agreement, and is prohibited from entering into other debt agreements without the bank’s consent. The Agreement also prohibits the Company from paying dividends without prior consent of the bank.

Under the Agreement, interest is paid at a rate of one-month LIBOR plus a margin of 2.75% for the term note and 2.50% for the revolving line of credit as long as the Company is in compliance with the terms of the Agreement. The Company is required to fix the interest rate on 75% of the outstanding balance of the term note and accomplishes this by entering into interest rate swap agreements. As of October 31, 2012, the Company had $1,991,000 of the term note subject to variable interest rates. The one-month LIBOR was .21% resulting in total variable interest rates of 2.96% and 2.71%, for the term note and the revolving line of credit as of October 31, 2012.

The Agreement requires the Company to be in compliance with certain financial covenants at the end of each fiscal quarter. The covenants include senior debt service coverage as defined of greater than 1.25 to 1, total debt service coverage as defined of greater than 1 to 1, and senior debt to EBITDA of less than 2.50 to 1. As of October 31, 2012, the Company was in compliance with these covenants and terms of the Agreement. On May 14, 2012, the Agreement was amended to change the definition of Consolidated Adjusted Operating Cash Flow to add $965,000 to the calculation of Cash Flow for the reference periods under the Agreement that end April 30, 2012, July 31, 2012 and October 31, 2012 and to allow for the use of up to $500,000 for the purchase of the Company’s stock.

Also under the Agreement, the Company is obligated to calculate Consolidated Excess Cash Flow based on its financial results for the fiscal year to determine if additional principal is due on the term note. Bank of America has waived this requirement for the fiscal year ending October 31, 2012.

Subordinated Debt

As part of the acquisition agreement in 2000 with the former shareholders of Crystal Rock Spring Water Company, the Company issued subordinated notes in the amount of $22,600,000. The notes have an effective date of October 5, 2000, were for an original term of seven years (subsequently extended to 2015 as part of the Agreement described above) and bear interest at 12% per year. Scheduled repayments are made quarterly and are interest only for the life of the note unless specified financial targets are met. In April 2004, the Company repaid $5,000,000 of the outstanding principal. In April, 2005, the Company repaid an additional $3,600,000 of this principal.

On May 7, 2009, with the mutual consent of the three subordinated debt holders and Bank of America, the Company paid $500,000 to John B. Baker as a payment of principal on his note. Similarly, on September 29, 2010, with the mutual consent of the three subordinated debt holders and Bank of America, the Company paid $500,000 to Peter K. Baker as a payment of principal on his note. As of October 31, 2012 and 2011, the Company had $13,000,000 of subordinated debt outstanding bearing an interest rate of 12% (see Note 24).

The notes are secured by all of the assets of the Company but specifically subordinated, with a separate agreement between the debt holders, to the senior credit facility described above.

Note Payable

In 2012, the Company made an acquisition that resulted in the issuance of a note for $101,000 to the seller. The note is due on March 20, 2013. The Company issued another note related to an acquisition for $150,000 in 2011 which it paid in full prior to the end of fiscal year 2011.

Annual Maturities

Annual maturities of debt as of October 31, 2012 are summarized as follows:

	Term		Subordinated		Note Payable		Total
Fiscal year ending October 31,
2013	$	2,214,000	$	1,500,000	$	101,103	$	3,815,103
2014		2,214,000		-		-		2,214,000
2015		5,037,000		11,500,000		-		16,537,000
Total Debt	$	9,465,000	$	13,000,000	$	101,103	$	22,566,103

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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